The Hong Kong dollar gained strength against the US dollar yesterday after the Hong Kong Monetary Authority offered HK$40 billion worth of additional Exchange Fund Bills to meet increased demand by banks.
The de facto central bank's move came amid abundant liquidity in the local banking system.
"The issuance of additional Exchange Fund paper will be conducted by expanding the supply of three-month Exchange Fund Bills," HKMA said. They will be offered separately from August 22 to September 19.
The increased offer is not expected to have a significant impact on liquidity conditions and interest rates, said HKMA. It added that the monetary base remains fully backed by foreign exchange reserves since the additional insurance is only a shift from the aggregate balance to exchange fund paper. Aggregate balance is thus expected to decline HK$40 billion to about HK$219.5 billion.
The Hong Kong dollar strengthened and rose to 7.8123 against the US dollar at one point yesterday. Analysts said it was driven by the HKMA's new measure.
But the HKMA denied that it intervened in the currency market, saying the additional issuance had nothing to do with the trend of the Hong Kong dollar, which this week eased to its weakest level in 18 months.
"The recent weakening of the Hong Kong dollar is not a concern to the HKMA," it said.
The yuan continued soaring yesterday. Onshore yuan rose as much as 0.5 percent to 6.6749 against the US dollar at one point. The greenback weakened after President Donald Trump warned North Korea it could face "fire and fury like the world has never seen."
The Hang Seng index fell 0.4 percent to 27,757.09 points, while the China Enterprises Index slipped 1.1 percent to 10,962.60 points.